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Private equity firms showed renewed appetite for emerging market deals in the second quarter, tapping regions with less debt and commercial risk than Europe and the US to boost portfolios and raise funds.

Firms agreed 89 emerging market buyouts worth $4.5bn in the second quarter, up from 63 deals worth $3.4bn in the same period last year, according to data provider Dealogic. The Indian subcontinent – including India, Bangladesh and Pakistan – was the most popular region, with 28 deals worth $1.3bn agreed, Dealogic said. Seven of the top 10 deals in India involved leading international private equity players.

Alastair Morrison, global head of private equity at Standard Chartered Bank, said: “There is a huge focus on infrastructure investments in the emerging markets, particularly in India. Indian infrastructure needs updating and requires commitment from long-term investors in sectors including construction, water treatment facilities, technical services and power plants.”

North Asia – which includes China, Hong Kong, the Koreas and Taiwan – was the second most active emerging market region in the second quarter, with buyouts worth $1.25bn agreed. Latin America was third, with deals worth $1bn, according to Dealogic.

Katie Sudol, private equity partner at international law firm Simpson Thacher & Bartlett, said: “We expect to see a continuing increase in private equity activity, particularly minority investments in China and India. As institutional investors have raised concerns over the status of highly leveraged mega-deals made over the last five years, these smaller, 100% equity investments represent a more focused and restrained investment strategy.”

According to Dave Read, Europe, Middle East, India and Africa business development leader at Ernst & Young, there is likely to be an increase in private equity activity in India, but China is expected to remain the leading emerging market due to the abundance of capital available for private equity fundraising.

US buyout house Blackstone Group announced a fundraising for its first renminbi denominated fund last November with a target of $738m, and is expecting its final close this month.

Meanwhile, US investment firm Carlyle Group completed a first close of its Chinese currency fund in July, raising almost half of the fund’s RMB5bn (€579m) target, and TPG Capital launched its first two renminbi denominated funds last month, targeting almost $1.5bn.

Morrison said: “The rapid growth of renminbi-denominated private equity funds has been driven by the Chinese government’s bid to build a solid onshore market and improve the quality of companies listed on the domestic stock exchange. The growing trend of renminbi-denominated private equity funds is expected to continue.”

Key second-quarter deals in emerging markets include Apax Partners’ acquisition of a $921m stake in ­Brazil-based computer services company ­Tivit, the firm’s first deal there. Brazil is also on the radar of US buyout firm Carlyle Group, which acquired Brazilian healthcare group Qualicorp in July for a reported $1.2bn.

Fernando Borges, managing director and head of Carlyle’s South America buyout team, said: “Brazil’s strong and growing economy and expanding middle class make it an excellent place to deploy capital.”

Indonesia is also drawing interest due to its growing working-age population and the government’s efforts to attract foreign direct investment. Morrison said: “Although Indonesia does not have a strong existing private equity culture like China or India and carries a higher degree of risk, it is a very exciting market. The next 12 to 24 months is likely to see more private equity transactions.”

Other top deals of the second quarter include the acquisition of Red Star Furniture Group, a China-based furniture retail stores operator, by a consortium led by US private equity firm Warburg Pincus for $381m, and Nordic buyout house IK Investment Partners’ acquisition of Agros Nova, a Poland-based food manufacturer, for $302m.

According to Read, Poland’s economy has held up well in the financial crisis and is likely to get stronger. However, private equity interest in eastern Europe and Russia has been limited and is expected to remain that way for the rest of the year. Read said the picture in the Middle East, where private equity activity has declined this year, was similar, yet he expected that the sub-Sahara and Africa region would experience higher levels of private equity activity, especially in Egypt and Turkey.

Loan issuance for new private equity deals in the emerging markets rose to $385m in the second quarter from just $171m in the first quarter. Morrison said: “The leverage debt market in Asia has not been as bad as [that in] Europe and the US. Lending multiples did not get out of control and there have not been many defaults. The leverage debt market has remained accessible to the private equity industry.”

According to Dealogic, the most popular exit route in the second quarter for financial sponsors in the emerging markets was trade sales, which generated $3.6bn from 16 deals. There were also initial public offerings worth a combined $1.2bn, up from just $455m in the previous quarter.

Sudol said: “The IPO markets in many emerging market regions, such as Brazil, India and China, have become more well-established and, despite recent downturns, will likely be the primary focus of private equity firms seeking to exit investments in the future.”